Why Celestica (TSX:CLS) Is up 50% in 3 Months

Celestica (TSX:CLS)(NYSE:CLS) stock is rebounding, as the company’s performance improves.

| More on:

Electronics manufacturer Celestica (TSX:CLS)(NYSE:CLS) has had a stunning rebound in recent months. The stock is up 50% since late July. Investors who’d bought the stock last year at the height of the pandemic have more than tripled their investment. 

This time, a solid third-quarter earnings report is the reason for the rebound. The stock spiked by as much as 11%, as Q3 earnings came above consensus estimates, affirming the company’s ability to generate shareholder value.

Here’s a closer look at Celestica’s recent performance and whether the company can sustain this momentum in the near future. 

Solid Q3

Celestica stock is up by about 17% year to date, having registered a new 52-week high this week. The strong third-quarter performance underscores the resiliency of the business. Celestica seems to have cemented its position as a leader in design manufacturing and supply chain solutions.

While revenue in the quarter was down 5% year over year to $1.47 billion, it came above consensus estimates with operating margin improving to 4.2% from 3.9% a year ago in the same quarter. Additionally, the company posted an adjusted EPS of $0.35, an improvement from $0.32 a year ago. Free cash flow nearly doubled to $27.1 million from $15.8 million in the third quarter of last year.

These strong results were surprising given the ongoing supply chain crisis. The global consumer tech sector has faced a crippling shortage of computer chips for months. Meanwhile, container ships that carry critical components from Asia continue to face a backlog on American and Canadian ports of entry. 

Celestica’s robust performance despite these global headwinds is noteworthy. 

Celestica’s outlook

Celestica has already hinted that 2021 is on course to be a successful year, as the company makes significant progress towards achieving its long-term strategic objectives. Recent acquisitions, such as that of Singapore-based firm PCI Limited, could be the reason for the team’s optimism.  

Consequently, Celestica expects revenue to increase by 27% year over year to $1.24 billion, with operating margin coming in at 4% compared to 3.5% as of the end of last year.

Amid the expected growth, Celestica is trading at a discount with a price-to-earnings multiple of about seven. With the stock starting to bounce back after the recent selloff, this might be the best time to buy it at a discount.

Bottom line

For much of 2021, investors remained pessimistic about the consumer electronics sector. Parts manufacturer Celestica was a key victim of this shift in sentiment. The stock lost 10% of its value through the first half of 2021. 

However, the company seems to have surpassed expectations. Revenue, net income, and cash flows are all above Bay Street targets in the third quarter. The company’s management team is now forecasting even stronger performance in the months ahead. 

With this in mind, the stock seems undervalued. Investors seeking growth at a reasonable and fair valuation should consider adding Celestica to their watch lists.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Vishesh Raisinghani has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Tech Stocks

think thought consider
Tech Stocks

Is CGI Stock a Buy Even With No Dividend Yield?

CGI stock may not have a dividend to speak of. But does that necessarily mean you should ignore this top…

Read more »

A robotic hand interacting with a visual AI touchscreen display.
Tech Stocks

Why Now Is the Time to Invest in Canadian AI Stocks

Are you looking for one of the most solid Canadian AI stocks out there? This one is probably your best…

Read more »

The letters AI glowing on a circuit board processor.
Tech Stocks

Why AI Stocks Should Be in Every Canadian Investor’s Portfolio

AI stocks continue to be one of the best options out there for long-term investing, especially when considering Canadian options.

Read more »

money goes up and down in balance
Tech Stocks

1 “Magnificent 7” Stock I’d Buy Over Nvidia Right Now

Here's why Meta Platforms stock is a better choice for Canadian investors compared to Nvidia in November 2024.

Read more »

A data center engineer works on a laptop at a server farm.
Tech Stocks

3 No-Brainer Data Centre Stocks to Buy With $500 Right Now

Data centres are going to be a huge growth opportunity in the next decade. And these are the top buys.

Read more »

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Is OpenText Stock a Buy, Sell, or Hold for 2025?

OpenText stock has fallen in the last few years, but that could mean this top tech stock remains an undervalued…

Read more »

AI microchip
Tech Stocks

Celestica Stock: Buy, Sell, or Hold?

Celestica's stock price has rallied 950% in the last five years. Will the AI boom send it even higher in…

Read more »

data analyze research
Tech Stocks

2 Ridiculously Cheap Growth Stocks to Buy Hand Over Fist in 2024

Well Health Technologies is a cheap growth stock to buy for its record-breaking results, massive revenue growth, and profitability.

Read more »